International Business Machines (NYSE:IBM) announced that it has signed a definitive agreement to acquire Israel-based Trusteer, a security software company.  While the financial terms of the deal have not been disclosed yet, Bloomberg said the acquisition is worth around $800 million citing a person familiar with the deal. 
In its 2015 roadmap, IBM stated that cloud computing will be the key driver for revenue growth and has spent billions of dollars building its cloud business globally with a number of acquisitions in the past three years that includes Softlayer, Keneax, DemandTec and Sterling Commerce, etc.
This acquisition will bolster IBM’s SmartCloud service division and will be a significant addition to its cloud based Software-as-a-Service (SaaS) business. Additionally, it also gives IBM access to Trusteer’s strong client base that includes seven of the top 10 U.S. banks and nine of the top 10 U.K. banks. Following the acquisition, IBM plans to set up a cyber security software lab in Israel where more than 200 Trusteer employees will work alongside IBM researchers and software developers on fraud detection and prevention solutions for applications and mobile platforms.
- IBM Earnings: Shift To Cloud Impacts Revenue Growth Even As Strategic Imperatives Witness Strong Growth
- IBM Earnings Preview: Transition To Cloud And Strategic Imperatives To Impact Revenue Growth
- Reviewing IBM’s 2016 Business Perfromance
- Why Is Watson IoT Platform Important For IBM?
- IBM Earnings: Revenue Decline Continues Even As Shift To Cloud And Strategic Imperatives Gains Momentum
- IBM Earnings Preview: Marginal Decline In Revenues As Shift To Cloud Services Gains Traction
Acquisition To Bolster IBM’s Software as a Service Offering
According to research firm IDC, the cloud SaaS market is poised to grow from $22.9 billion in 2012 to over $67 billion by 2016. Additionally, it also predicts that Software-as-a-Service (SaaS) will achieve a compound annual growth rate (CAGR) of 24% through 2016. 
IBM’s technology services and global business services divisions together make revenues of nearly $60 billion and account for 35% of its estimated value. In the past few quarters, IBM’s cloud initiative reported growth of over 70% and is the primary reason for IBM’s revenues stabilizing in its technology and global business services division. IBM projects that cloud services will generate $7 billion in revenue by 2015, but we expect the top line will be meaningfully higher due to the acquisitions and initiatives that IBM has undertaken in the past few years.
Trusteer sells software to protect financial institutions and its customers from hackers. The company reported revenues in excess of $40 million in 2012, and we expect that its revenues will grow substantially as it will now have access to IBM’s technology and global reach.
According to IBM, over half of the top 25 US financial institution offer mobile person-to-person transfers and mobile remote deposit capabilities. As the usage of mobile devices increases, transactions volume through mobile devices is expected to rise. Trusteer provides account takeover prevention, compromised device detection, complex device fingerprinting and a global fraudster database for mobile devices. This acquisition, therefore, will boost IBM’s capability to secure mobile transactions. Additionally, this acquisition will not only complement more than 100 Software as a Service (SaaS) solutions offered by IBM, but also supplement IBM’s advanced portfolio of counter- fraud software and services, including QRadar, i2, SPSS, InfoSphere and Enterprise Content Management.
We currently have a $234 Trefis price estimate for IBM, which is 25% above its current market price.Notes:
- IBM to Acquire Trusteer to Help Companies Combat Financial Fraud and Advanced Security Threats, August 15 2013, www.ibm.com [↩]
- IBM Said to Be Paying More Than $800 Million to Buy Trusteer, August 16 2013, www.bloomberg.com [↩]
- Worldwide SaaS and Cloud Software 2012–2016 Forecast and 2011 Vendor Shares, August 2012, www.idc.com [↩]